One metric I look at fairly often for various countries is the relationship between the performance of stocks vs. bonds. The idea is straightforward enough: when stocks are outperforming bonds, it tends to be associated with a growing economy. When bonds are outperforming stocks, it is a tell that there is some sort of negative dynamic going on.
Why do I bring this up? In the US, stocks—represented by the SPY ETF—have just made a new high relative to the TLT ETF (which represents long-term US Treasury bonds). This would suggest that despite all the angst over inflation, the debt ceiling, and other issues, investors seem to taking a positive perspective.
This contrasts with China. In China, stocks have underperformed government bonds by about 50% since the beginning of 2021. This suggests there could be something rotten going on underneath the surface of the Chinese economy. Debt issues, housing issues, demographic issues, and geopolitical issues all could be weighing on sentiment toward Chinese equities and growth.
To further validate the theory that there is something rotten in China, I overlay the CNY/USD on the stock/bond chart. The CNY is weakening alongside this relationship of bonds outperforming stocks.
While last fall, the market began to discount the opening of China, now the dynamic seems to have changed. Copper did a good job signaling the upturn in Chinese GDP estimates for 2023. With the Chinese reopening seeming to have less thrust than was anticipated, copper prices are falling again. This could telegraph a downturn in Chinese growth estimates.
Disclosures
The information presented here is for informational purposes only and is not to be construed as an offer to sell, or the solicitation of an offer to buy securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. Hyperlinks may be included in this message that provides direct access to other internet resources, including websites. While we believe these links are to reliable sources, Knowledge Leaders Capital (“KLC”) has no control over the accuracy or content of information contained on these sites. Although we make every effort to ensure such links are accurate, up-to-date, and relevant, we have no control over pages maintained by external providers. The views expressed by these external providers on their own web pages or on external sites they link to are not necessarily those of Knowledge Leaders Capital.
The information provided on this blog is for illustrative or example purposes only and should not be construed as KLC’s opinion or investment outlook. As of the most recent quarter-end, the named companies may have been held by KLC. For full information including additional policies and full disclosures, please visit our website: KnowledgeLeadersCapital.com.
Any reference to Index performance does not represent the performance of any investment product offered by Knowledge Leaders Capital, LLC. An investor cannot invest directly in an index. The performance of the client account may vary from the Index performance. Index returns shown are not reflective of actual investor performance nor do they reflect fees and expenses applicable to investing.
Companies are selected for “Spotlights” based on high levels of innovation activities in their respective industries and illustrate innovation being employed across all sectors and geographies. Spotlight selection is separate from stock selection by the investment team. Spotlights are not necessarily representative of investment opportunities and can be selected regardless of investment performance or inclusion as a KLC holding.
A message from Advisor Perspectives and VettaFi: To learn more on this and other topics, check out our full schedule of upcoming CE-approved virtual events.
© Knowledge Leaders Capital
More Commodities Topics >
